Learn
A little clarity for your next decision.
Loading your learning library…
Investor WorkspaceWelcome, there!Log Out
Investor WorkspaceA little clarity for your next decision.
By Jerry Baker
An Ohio 1031 exchange can defer gain when you trade real estate held for investment or business use for other qualifying real estate. Ohio owners also need to examine state, city, and school district taxes, along with the costs of the property they plan to buy. This guide explains those layers, rental duties, and the questions to ask when comparing direct ownership with a DST.
A building can be a good investment and still be a poor fit for your next stage of life. You may want fewer calls from tenants, a more reliable repair budget, or less money tied to one property. Those are different goals. They should lead to different questions.
I would start with the work you do now. Who collects the rent? Who approves a roof repair? How much cash must stay in reserve? A rent check is only one part of the return. Your time and the risk of a large surprise bill belong in the discussion.
Then separate the sale decision from the replacement decision. A strong offer for your Ohio property does not prove that the next purchase is sound. Nor does a tax deadline make weak financial assumptions stronger. We need a plan for both transactions, with room to reject a replacement that does not hold up.
Section 1031 applies to qualifying real property held for business or investment. It is not a general exemption for selling a home or property held mainly for resale. The replacement need not match the old property's exact use. An investment apartment and qualifying commercial real estate can be like-kind even though their tenants differ. Deferral also means the tax has been postponed, not simply erased. [1]
Arrange the qualified intermediary before the sale closes. In a typical deferred exchange, you have 45 days after the transfer to identify replacement property in writing. You must receive it by the earlier of 180 days or the due date of your tax return, including extensions. Receipt of the proceeds and errors in identification can jeopardize the exchange. Review the contract, title, taxpayer identity, and wire instructions early. [2]
I suggest keeping two calendars. One tracks the federal exchange dates. The other tracks loan approval, title review, inspections, records, and signatures. The second calendar needs earlier deadlines. Waiting until the last legal day to ask whether a building has unresolved violations leaves very little room to solve anything.
Ohio's statute sets a 2026 individual nonbusiness tax formula of $332 plus 2.75% of the taxable balance above $26,050. No tax applies when that balance is at or below $26,050. The balance is after the specified business-income and exemption adjustments. This is not simply 2.75% of every dollar. The law also provides for inflation adjustments, so confirm the final return-year table before filing. [3]
For example, applying that stated formula to a hypothetical $100,000 balance gives $2,365.63 before credits. It does not measure the tax on a particular property sale. Your other income, deductions, ownership, and the character of the gain can change the result.
Ohio treats business income separately. State law allows a business-income deduction of up to $250,000 for most individual filers, or $125,000 for each spouse filing separately. Taxable business income is generally subject to 3%, with the statutory adjustments. Whether rent or sale proceeds meet the business-income definition depends on the activity and facts. Owning a rental or forming an LLC does not, by itself, answer that question. [4][3]
Ask your CPA to show the character of each item on a sale worksheet. That is more useful than picking the lowest rate from a search result. Keep the Ohio basis and depreciation records as well as the federal ones. If they differ, the difference should remain visible through the exchange.
For nonbusiness income, Ohio allocates a nonresident's real estate rents and capital gains to Ohio when the property is physically in the state. Residents generally begin with a broader income base. Business income follows its own rules. Moving away does not automatically remove Ohio tax or filing duties for an Ohio property. [5]
Municipal income tax is another layer. RITA's guidance lists rental income and ordinary gains reported on federal Form 4797 as taxable categories. It lists capital gains as nontaxable, while warning that exceptions and local rules matter. The word “gain” on a closing summary does not tell you which category applies. Ask who administers the particular city's tax and how each part of the sale is treated. [6]
School district income tax is different again. Ohio law links it to the individual's district residence during the year. Districts may use a broader modified-income base or a base focused on wages and net self-employment earnings. Buying a rental in a district is not the same as living there. The district shown on a property-tax bill does not settle your personal school district income-tax return. [7]
A useful worksheet has separate rows for federal tax, Ohio tax, municipal tax, and school district tax. Write the responsible adviser and filing form next to each row. This helps prevent one familiar return from hiding another obligation.
Ohio property taxes generally use an assessed value equal to 35% of market value. Local levies and tax reductions then affect the bill. The 35% figure is an assessment ratio, not a tax rate. Grandview Heights explains this distinction in its official property-tax guidance. [8]
For simple arithmetic, a hypothetical $1 million market value produces $350,000 of assessed value. If the applicable effective rate were 60 mills, the starting tax would be $21,000. Those are invented inputs, not a quote for a location. Special assessments, credits, and the actual tax district still need review.
Check the current valuation cycle rather than assuming every county shares the same dates. Franklin County's official page identifies a 2026 value update and lists its next full reappraisal for 2030. A seller's older assessment may not describe the bill during your ownership. [9]
Franklin County also explains that taxes are paid in arrears and that the auditor does not calculate closing prorations. Its current Board of Revision guidance lists the filing window for a 2026 value complaint. Review those dates directly before acting. A contract credit for old taxes and an appeal of assessed value are two separate tasks. [10]
Request the parcel's tax history, current value, pending appeals, exemptions, and special assessments. Then ask for a buyer-specific estimate. Do not assume that relief tied to an owner's home remains available for an investment rental.
Ohio's general conveyance fee is effectively $1 per $1,000 of value, with a minimum and statutory rounding. The law lists specific exempt transfers. Federal income-tax deferral is not a blanket exemption from that fee. [11]
A county may also impose a real property transfer tax of up to $3 per $1,000. The actual county rate and any applicable exemption must be checked for the deed being recorded. [12]
At a hypothetical combined $4 per $1,000, a nonexempt $1.5 million transfer would produce $6,000 of these charges before other closing costs. Ask the title company to confirm the figures and who pays them. Separately, ask the exchange adviser which expenses affect the exchange calculation. A charge can be due at closing without receiving the tax treatment you expected.
Ohio's Chapter 5323 definition covers residential rental property in counties with more than 200,000 residents under the most recent census. It excludes hotels and college dormitories. That scope matters; this chapter should not be described as one identical registration rule for every Ohio rental. Local rules can still apply elsewhere. [13]
For covered property, owners file contact and property information with the county auditor. Entity owners must identify the appropriate responsible person. Changes to filed information must be updated within 60 days. [14]
A covered out-of-state owner also needs an Ohio agent for service of process. The statute addresses owners who already maintain a qualifying statutory agent and requires the relevant county filing. An agent's name on an LLC document is not a reason to skip the county's process. [15]
Put those records beside city permits, inspection reports, and insurance policies. Verify the owner name, parcel, unit count, and contact information on each one. If the documents disagree, have the seller and local officials resolve the mismatch before you assume the income from every unit is lawful and durable.
Cleveland's current rental page requires annual registration for non-owner-occupied residential property, including homes occupied by relatives without rent. It lists a $70 per-unit fee. Its application requirements also address lead certification, property taxes, owner-paid utilities, and a local agent in specified cases. Read the requirements for the actual owner and building; a payment receipt alone may not establish full compliance. [16]
For covered older housing, obtain the lead-safe certificate and the underlying inspection file. The city's certification page describes a two-year renewal cycle and submission of the report within 90 days of inspection. Confirm exemptions and current filing instructions with the city rather than relying on a seller's statement that the building “passed years ago.” [17]
Timing is especially relevant now. Cleveland published revised risk-assessment report requirements effective July 10, 2026. A newly submitted report must meet the applicable standards, even if the owner has an older report template. [18]
My purchase questions would be practical: Which units are covered? When do certificates expire? What work remains? Who pays for it? Can tenants safely remain during the work? Have a qualified professional price the scope. A low purchase price is not a repair plan.
Ohio requires 5% annual interest on the portion of a security deposit above the greater of $50 or one month's rent when the tenant stays six months or longer. It is not automatically 5% on the whole deposit. The statute also addresses itemized deductions and return of the balance within 30 days after both termination and delivery of possession, with related forwarding-address rules. [19]
For a hypothetical $2,000 deposit on a $1,200 monthly rental, the excess is $800. The annual interest on that excess would be $40 when the statutory conditions apply. Reconcile amounts by tenant, including interest already paid. Do not count money owed to tenants as part of your available operating cash.
A clear handoff file should contain leases, deposits, balances, notices, pending disputes, and open repairs. Test a few entries against bank records. A tidy spreadsheet can still contain old assumptions.
For Ohio land receiving Current Agricultural Use Value treatment, conversion can trigger a charge equal to the tax savings for the three tax years before conversion. The statute includes exceptions and addresses partial conversions. The charge concerns prior property-tax savings, not the federal gain from selling the land. [20]
If a plan combines farming with future development, ask the county to explain the treatment of each parcel and each phase. Decide who bears a possible charge under the contract. Also review farm leases, access, drainage, and utility capacity. A future development sketch does not supply those rights.
For an industrial site, Ohio's Voluntary Action Program offers a process to investigate contamination, complete needed work, and seek a state covenant not to sue. Ohio EPA updated its program overview in July 2026. [21]
The covenant has limits. Continued protection can depend on meeting standards, maintaining controls, monitoring, and reporting. Certain transfers require notice. It is not a promise that any future use is safe or that all possible liability has vanished. Have environmental counsel and a qualified consultant review the exact property documents. [22]
For example, a warehouse budget should not assume apartment conversion is easy just because a cleanup file exists. Compare the approved use, proposed use, and cost of any extra work. Keep that question open until the evidence supports an answer.
A qualifying DST interest can provide fractional real estate ownership within a 1031 exchange. IRS Revenue Ruling 2004-86 describes a trust structure that qualifies under its facts, including limits on trustee powers. It does not approve every trust called a DST or guarantee an offering's tax treatment. [23]
Private offerings also bring limited liquidity, limited disclosure compared with public markets, and the risk of loss. The SEC warns that eligibility to buy a private placement does not make it safe. Read the actual offering documents, fees, debt terms, sponsor information, and conflicts. [24]
I would compare choices using the same cash worksheet. Suppose an Ohio rental collects $240,000 a year. After $105,000 of operating costs, $75,000 of debt payments, and $18,000 of reserves, $42,000 remains. That is $3,500 per month, or 6% on a hypothetical $700,000 equity investment. It is not a prediction or a market average.
Now add $10,000 of repairs and $8,000 of lost rent. Cash falls to $24,000, or $2,000 monthly and about 3.43% on that equity. The point is to see which expenses the owner can bear, not to claim that another investment will avoid them.
For a DST, ask what supports the stated distribution and whether reserves or borrowed money contribute to it. For direct ownership, include paid management even if you have historically worked for free. Both comparisons become more useful when the numbers reflect the work and capital each option needs.
Give each unresolved issue an owner and a date. A question marked “someone will check” is easy to lose during closing. I would rather see a short list of clear answers than a long list of properties with attractive photos. Your CPA, attorney, and intermediary should review their parts of the plan before money moves.
No. Federal like-kind rules can permit an exchange between qualifying properties in different states. The property's use, ownership, and exchange structure still matter. State sourcing and filing questions should be reviewed separately. [1][5]
No. The nonbusiness formula, business-income rules, credits, and local taxes may produce different results. A rental's income classification needs review. Do not multiply the closing check by one percentage and call it your tax bill. [3][4]
No. RITA distinguishes capital gains from taxable ordinary gains reported on Form 4797. The character of the income and the relevant municipality's rules need review. [6]
No. It is the share of market value used as the assessment base. The applicable levies and adjustments determine the tax. Request a parcel-specific estimate. [8]
No. The city's registration process includes separate lead-related requirements for covered housing. Review the certificate, expiration date, and current reporting requirements. [16][18]
No. Management may shift to the sponsor, but the investment can still bear taxes, repairs, tenant problems, and debt risk. Limited liquidity and fees also matter. Review the property and structure, not just the distribution estimate. [24]
Educational information, not an offer or a personal tax, legal, or investment recommendation. Examples are hypothetical and omit stated adjustments. Tax treatment depends on your facts and current law. Review your transaction with your CPA, attorney, and qualified intermediary. Real estate investments can lose value and may be illiquid.
Enter your approved email to explore investments, save your shortlist, and keep learning.